Inflation and pay hike has always been a chicken and egg thing. When inflation goes up, pay hike should usually go up to match the inflation; and when pay goes up, companies will have to raise the cost of their products and services to keep up with the pay hike that they are giving out. This eventually becomes a viscous cycle and our National Wage Council decided to do the right thing – by capping the recommended pay hike and hoping that the inflation will be capped.

While I am no economics guru, I just wonder:

Doesn’t that mean that people will have the bite the bullet (again)?

What’s there to stop companies from keeping inflation up?

Personally, I would think that the people will have to bite the bullet regardless. After all, if it’s a government initiative, who’s there to stop them anyway? Secondly, if this doesn’t work (despite the people biting the bullet), then there’s still time for them to try other means of keeping inflation down. Doing anything directly on the companies themselves might trigger something unexpected that may affect businesses and consequently the economy, it’d be better to just hit on the people because if it’s stuffs they need to buy, they’d still buy and this will still contribute to the economy. By using the people to control the demand, the government will not have to take any direct intervention against companies and their businesses – hence maintaining their pro-business stance.

Smart government. =) Just that everyone else has to bite the bullet now. No worries, it’d be painless.

THE National Wages Council faces a tough task in deciding wage guidelines for this year, analysts said yesterday.

It will have to strike a balance between forces pulling in different directions.

Elaborating on the conundrum facing the council, Citigroup economist Kit Wei Zheng said: ‘Inflation is quite high, so they will want wage increases of at least 5 per cent to match the inflation rate.

‘But the economy is likely to slow down, so there is limited room for employers to give wage increases like last year’s.’

Add to this a labour market still hungry for workers and Mr Kit, like most analysts, foresees the council recommending a ‘moderate’ wage increase, lower than last year’s.

The council, headed by Professor Lim Pin, gives annual wage guidelines which are closely watched by the private and public sectors, as they are one of the clearest and earliest indicators of any wage changes and bonuses that employees can expect this year.

As a prelude to its recommendations, the council yesterday asked for feedback from the public and organisations by April 25.

It is seeking comments ‘on wage and wage-related matters, including issues related to the employment and employability of older and low-wage workers’, the council said in a statement.

In their comments yesterday, analysts said that caution from the NWC against big pay hikes was almost inevitable despite the sterling performance of the economy so far.

Between January and last month, the economy grew by 7.2 per cent. The unemployment rate also fell to a 10-year low of 2.1 per cent.